New York Attorney General Eric Schneiderman announced May 6 that his office intends to sue Bank of America and Wells Fargo for purported violations of the 2012 national $25 billion mortgage settlement between the nation’s largest banks and 49 state attorneys general, The Wall Street Journal reported.

The attorney general’s office provided notice “pursuant to the settlement’s requirement” regarding its intent to sue both banks.

Schneiderman said the two banks have been delinquent in promptly responding to loan modification requests from borrowers. He said that his office has uncovered 339 violations of settlement service standards by Bank of America and Wells Fargo, the Journal reported.

Other banks included in the original settlement are J.P. Morgan Chase, Citigroup and Ally Financial. Schneiderman has not ruled out actions against those institutions, but said Bank of America and Wells Fargo stand out as having the most violations of settlement standards.

Settlement monitor Joseph Smith noted in a report released in February that while the five banks had provided $45.8 billion in relief to borrowers between March and December 2012, the volume of customer complaints had increased in recent months.

Among the complaints filed by New York borrowers are that banks have required them to resubmit loan modification requests numerous times because they are taking so long to process them that homeowner information becomes out of date. Homeowners also reported difficulty in reaching by phone any points of contact at the banks.

“I intend to use the full breadth of my power under the settlement to hold the banks accountable,” Schneiderman told the Journal.

Iowa Attorney General Tom Miller said his office also has received a lot of homeowner complaints and is monitoring the situation to see what results from Schneiderman’s efforts.

In response, a Wells Fargo spokesperson said that the bank is fully committed to complying with settlement standards.

Bank of America, however, was more reactive.

In a letter made public May 13 by National Mortgage News, Bank of America said that Schneiderman has no right to take enforcement action against it over claims that it violated terms of a nationwide foreclosure settlement.

It noted that the settlement does permit enforcement actions but only after a bank has had an opportunity to “cure” the violation and has failed to comply with defined metrics. The bank said it has complied with “every applicable metric.”

“Your office has no right under the express terms of the national mortgage settlement to commence an enforcement action against Bank of America, and we respectfully request that your notice of intent to do so be publicly withdrawn,” attorneys for the bank stated in the letter, National Mortgage News reported.

Schneiderman’s office did not respond to National Mortgage News’s request for comment about the letter.

NEW YORK (CNNMoney)
Consider this one more sign that the housing market is heating up: Appraisers are putting higher values on homes again, allowing for more deals to go through.

During the housing bust, sales were often derailed by low-ball appraisals that fell far shy of a home’s selling price.

For example, if a home cost $500,000 and required a 20% down payment of $100,000, the buyer would need to finance $400,000. But if the appraiser valued the home at $450,000, the buyer would only be eligible for a $360,000 loan — making the home too costly for some buyers.

But now, as home prices climb and housing inventories shrink, appraisers are valuing homes at or above their selling prices, according to Lawrence Yun, chief economist for the National Association of Realtors.

Between 2008 and 2010, appraisals for more than a third of Seattle-based real estate agent Michael Ackerman’s sales came in below the selling price. So he had to get creative.

“I started pulling out the key boxes at the homes so the appraisers couldn’t get in,” said Ackerman. “They had to call me to let them see the home. I would bring a packet of comparables along and explain what I used to price the home.”

But now, with home prices posting such strong gains, those strategies may not be necessary anymore.

“I’ve closed 15 homes so far this year and none of the appraisals have come in below the selling price,” said Ackerman.

He was certain a recent deal in Wallingford, Wash. was going to fall through when the buyer agreed to pay $755,000 — well above the average $690,000 other homes in the area had sold for. When the appraisal came in at the full selling price “everybody’s jaws dropped,” he said.

And in some of the hottest markets, appraisals are coming in well above the selling price.

Agent Eric Tan said one appraiser did a “drive-by” of a West Covina, Calif., home he was selling in April.

“He didn’t ask for any comps, to see the inside of the house, or even schedule a time to meet with me. He wrote up the appraisal right at the purchase price,” he said. “I was able to sell the client’s home for about $40,000 more than I thought the appraiser would value it.”

In Jacksonville Beach, Fla., where prices have soared 15% over the past 12 months, agent Cara Ameer was “holding her breath” when it came time to get an appraisal on a two-bedroom townhouse she sold for $5,000 more than its $189,000 asking price.

“It was FHA financing and [the FHA is] typically much more strict,” she said. That appraisal too ended up coming in above the selling price.

Some appraisers are being paid full fees for their appraisal work, even though the orders are coming from appraisal management companies (AMCs). Here’s how it works.

It’s called the cost-plus AMC fee model. The cost-plus or “full fee” AMC model, where the appraiser receives the full fee for the appraisal and the lender/mortgage broker pays the AMC an additional fee for its services, has been posed as a workable solution ever since the Home Valuation Code of Conduct (HVCC) made AMCs a fact of life for most appraisers. Now it appears that some lenders and mortgage brokers are beginning to see the quality advantages of the cost-plus model.

Appraiser Perspective
Bill Streep, an appraiser from San Antonio, Texas, says that he has been working for AMCs on the cost-plus model for over two years. “At first I just had one client who was paying me full-fees; now I have four or five clients who are paying me on a cost-plus model through an AMC—some are correspondent lenders, some are traditional lenders or mortgage brokers,” says Streep.

In Streep’s case, the lender or the mortgage company picks the panel of appraisers and then pays the AMC on a per order basis to manage the appraisal process. “A loan officer from a mortgage company will call and ask if I would agree to be on their appraisal panel. If I agree, they’ll send over their fee schedule and we’ll go from there,” says Streep. “It reintroduces the client-vendor relationship that we appraisers used to have before HVCC- the mortgage companies get to pick the appraisers. If you do a lousy job, they can go back to the AMC and say, remove this person from our panel, or if they like your work, add this person to our panel.”

Streep says that he receives significantly higher fees from his clients using the cost-plus model. He describes a winnowing process over the last few years- picking and choosing who to work for until the majority are full fee clients. “I turn down orders all the time and refuse to work for low fees. Maybe it’s the quality of my work, maybe it’s the local environment, maybe it’s both,” says Streep. He says his sales and marketing background also are a factor- he promotes his services every chance he gets. This, plus good word of mouth referrals earned by producing consistently high-quality work, has helped him arrive at a place where he only works for full fees- mostly in this cost-plus model. Streep says lenders are adopting the model because they want a quality appraiser panel. “This model works for all parties: appraisers get paid a fair fee, lenders get the quality they want and AMCs get paid for their role. When you pay someone a fair fee, you get a good product. You do get what you pay for,” Streep says.

AMC Perspective
Chuck Mureddu, the Managing Director at Quality Valuation Services (QVS), a national, appraiser-owned AMC, says that QVS is currently working with lenders who have recently begun using a cost-plus model.

In contrast to the model described by Streep, Mureddu says that at QVS the lender does not select the appraiser panel. “We use our own panel. We don’t believe in utilizing a lender’s panel because there’s a risk of diluting the independence part of building a fee panel. We’re not opposed to adding appraisers recommended by our clients, but we vet all appraisers to determine competency before adding them to our panel,” Mureddu says.

Mureddu sees the cost-plus model as one that benefits both the AMC and the appraiser. “Our appraisers are very happy about it. It benefits them because they get paid a full fee and are able to spend more time and do a better job. Cost-plus also allows us to pay higher fees and go out and hire competent appraisers, which increases the value we offer to our clients and makes us more competitive,” Mureddu says.

Even outside the cost-plus model, Mureddu stresses the importance of paying appraisers fair fees and highlights how the appraiser fee is related to the quality of work. “Appraisal fees have been pretty stagnant over the last 20 years. But when AMCs came onto the scene, some, not all, ended up taking a significant portion of the appraisal fee. The result is that only those appraisers who are incompetent or new to the game will work for those lower fees, so the quality of the appraisal is reduced,” Mureddu says. Another effect, according to Mureddu, is that low fees have pushed many good appraisers out of the business.

Consequently, the cost-plus model, and higher fees in general, are, in part, a response to the effects that low fees have had on appraisal quality. Mureddu feels strongly that appraisers must be paid fair fees. “We look at appraisers as our business partners and feel that ‘faster and cheaper’ is the wrong approach. Higher fees help capture the best and the brightest appraisers. We don’t want form-fillers—it costs us money to deal with form-fillers. We want good appraisers,” Mureddu says.

Of course, with higher fees comes an expectation for higher quality. “The fee should not be driving quality. The quality should drive the fee,” says Mureddu. “Those lenders who adopt cost-plus will expect the highest quality of product and service. We are continually fine-tuning our panel in order to meet customer expectations. Ultimately, we are only as good as our panel and therefore score appraisers for each and every assignment.”

RESPA Concerns
Some lenders express concern about the problems that might arise if they misjudge the complexity of the assignment and the appraiser requests a fee increase. The Real Estate Settlement Procedures Act (RESPA) requires a Good Faith Estimate that must be disclosed to the borrower, which typically leads to a lender disclosing the appraisal fee 7-10 days before the appraisal is even ordered. Since there is minimal tolerance for over-disclosure or under-disclosure, some lenders are hesitant about the problems that might arise when the fees to the appraiser and AMC are separated, and the appraiser then requests a fee increase.

Mureddu says this typically is not a problem for QVS. “The lender has usually already done their homework and due diligence on the property, and through their direct engagement business, they know what a reasonable fee for the assignment is,” Mureddu says.

However, Mureddu admits that the problem does arise. “There are going to be certain situations where the property is that white elephant, if you will. Sometimes we go back to the lender and say, look, this property is complex, and many times the bank will pay those higher fees to us. However in some cases, we will eat those extra costs,” Mureddu says.

One concern that lenders have, according to Mureddu, is that the extra fees associated with cost-plus will make their mortgage origination business less competitive and they will lose clients as a result. However, he says that so far the lenders using cost-plus haven’t seen a decline in their mortgage origination volume. “They’re not hurting with cost-plus, I’m sure they’ve gone through challenges with their production staff, but it’s not hurting their volume.”

Looking Ahead
As far as the future Mureddu says, “I think we’ll see more cost-plus models. When we talk to some of our clients and potential clients, they are looking into it. I can’t say whether they will change or migrate over to it but there are a few who have figured out how to do it and they realize that they are getting a good quality product.”

For appraisers who are looking for higher fees or to work with AMCs on a cost-plus basis, Mureddu stresses quality as a driving factor. “The quality of product is most important and it is important for the appraiser to present a fully usable, supportable, and defensible ‘first pass’ product. AMCs will reward those appraisers who demonstrate the best work and service levels. That is, the better and more professional appraisers become, the more they can demand. It is in our best interest to use those top-line appraisers as that will assist us in negotiating higher fees with our clients.”

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